I saw a post saying that two people left school 23 years ago with a combined debt of 70k. They paid 500 USD monthly for 23 years and still owe 60k.
I’m thoroughly confused. obligatory not from America.
In: Mathematics
Student loan debt is first of all a bit different because unlike most debt, it cannot be discharged by bankruptcy. Once you have the debt, you have the debt, period.
The other side of that coin is that it’s a bit more flexible than normal debt, than say for example a mortgage.
With a mortgage you have the principal – the part that pays off the debt, the interest, the part that goes into the bank’s pockets based on how much principal is left, and things like insurance and other fees. You can’t pick and choose what to pay in a mortgage, you have pay all of it every month or else they come and take your house away.
With a student loan you *have some flexibility,* depending on the loan. So for example you can *only* pay the interest part, this the bank’s profit part. This means the principal is going untouched. So what’s happening in the example you gave is the monthly payment is *really* $1,000 a month, but the person is *only paying* $500. Hence the portion they owe isn’t getting decreased over time.
There are reasons why they might not be making the whole monthly payment, for example they might be expecting the debt to be paid off by the government either through an established program or because of the proposed student debt forgiveness program, or they might not have enough money to pay for the debt and are just paying what they can.
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